Page 896 - Accounting Principles (A Business Perspective)

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Cash receipts We can prepare the cash receipts schedule from the information used to compute the accounts
receivable schedule (Exhibit 189). In Exhibit 192, we show the schedule of planned cash receipts for Leed Company.
Cash disbursements Companies need cash to pay for purchases, wages, rent, interest, income taxes, cash

dividends, and most other expenses. We can obtain the amount of each cash disbursement from other budgets or
schedules. Look at Exhibit 193, the cash disbursements schedule for Leed Company. You can see where the
information came from, except for the payment of income taxes and dividends. Income taxes are assumed to be 40
per cent of income before income taxes. We assume that USD 20,000 of dividends will be paid in the first quarter
and USD 40,000 in the second quarter.
Leed Company
Planned Cash receipts
Quarter ending
2010 March 31 2010 June 30
Collections on accounts receivable:
From preceding quarter's sales $200,000 $160,000 (0.4 x $400,000)
From current quarter's sales 240,000 (0.6 x 420,000 (0.6 x $700,000)
$400,000)
Total cash receipts (per Exhibit 189) $440,000 $580,000
Exhibit 192: Leed Company: Planned cash receipts
Leed Company
Planned cash disbursements
Quarter Ending
2010 March 2010 June 30
31
Payment of accounts payable (per Exhibit 191) $ 80,000 $ 56,000
Payment of accrued liabilities payable (per 330,000 354,000
Exhibit 191)
Payment of income tax liability 50,000 50,000
Payment of dividends 20,000 40,000
Expenses prepaid (per Exhibit 191) -0- 10,000
Total cash disbursements $480,000 $510,000
Exhibit 193: Leed Company: Planned cash disbursements
Once cash receipts and disbursements have been determined, we can prepare a cash budget for Leed Company,
as shown in Exhibit 194. The cash budget is a plan indicating expected inflows and outflows of cash.
Leed company
Planned cash flows and cash balances
Quarter ending
2010 2010 June 30
March 31
Planned balance at beginning of quarter $130,000* $ 90,000
Planned cash receipts:
Collections of accounts receivable (per Exhibit 440,000 580,000
192)
$570,000 $670,000
Planned cash disbursements:
Payment of accounts payable (per Exhibit 191) $ 80,000 $ 56,000
Payment of accrued liabilities payable (per 330,000 354,000
Exhibit 191)
Payment of income tax liability 50,000 50,000
Payment of dividends 20,000 40,000
Expenses prepaid (per Exhibit 191) -0- 10,000
Total cash disbursements $480,000 $510,000
Planned balance at end of quarter $ 90,000 $ 160,000
*Actual on January 1.
Exhibit 194: Leed Company: Planned cash flows and cash balances

This cash budget helps management to decide whether enough cash will be available for short-term needs. If a
company's cash budget indicates a cash shortage at a certain date, the company may need to borrow money on a

Accounting Principles: A Business Perspective 897 A Global Text